Independent Banker - August 2023 - 20

PORTFOLIO
processors like Visa or Mastercard,
financial institutions should not only
think about cutting expenses but
also taking advantage of available
incentives, explains Mike Holt,
partner at Profit Resources, Inc.
(PRI) in Monroe, Ga.
Holt notes that Visa and
Mastercard offer incentive income
for banks that place their logos on
the banks' debit cards, guaranteeing
issuance for a discrete time. " If the
pie here is the interchange income, "
he explains, " the incentives [card
processors] pay to guarantee your
loyalty in issuance is the whipped
cream on top. "
Mikelle Brady, also a partner at
PRI, underscores the importance
of negotiating with electronic funds
transfer (EFT) processors and
making sure " you're getting the best
rates possible. "
Revisit your check-printing
arrangement. Schartman
estimates community banks can save
40% on check-printing costs by using
a third party to negotiate contracts.
When it comes to securing a good
deal, the problem, he says, is that
pricing is " opaque and individually
negotiated. " In addition, choice is
limited, as the field is dominated
by two major players that together
serve around 95% of the market:
Vericast (formerly Harland Clarke)
and Deluxe.
5
Some firms, including
Schartman's, include their consulting
fee as a percentage of their final
savings for the bank.
6
Look for unused services
and duplicated efforts.
PRI's Brady describes a " system
utilization review " as an excellent
step for understanding which
services your current roster of
vendors provides.
" Due diligence means
getting three bids from two
other companies, plus your
current supplier, and doing
a thorough evaluation. "
-KELLY FLYNN, JMFA CONTRACT OPTIMIZER
During such a review, her firm
searches through filing cabinets and
often finds products and services
that a bank doesn't realize it owns. A
bank can then begin using what it's
entitled to or can cancel the unused
service-and reap any savings.
In addition, Brady frequently
discovers that a bank can
discontinue an often-duplicated
service-for example, e-signature-
at one or more vendors if it has
been inadvertently paying multiple
providers for the same functionality.
Outsource specialized
expertise rather than
adding employees. Given
the large-bank failures this
year, Pieniazek predicts that
" regulatory scrutiny will be
accelerating northward. "
Savvy banks will not necessarily
hire a bevy of risk management and
compliance experts; instead, he
suggests, many will outsource the
expertise and technology they need.
Other areas that lend themselves
to outsourcing, says Pieniazek,
include credit reviews and the assetliability
committee (ALCO).
7
8
Beware of CPI hikes and
other potentially costly
clauses. Some small-print contract
terms can prove a big headache if not
properly negotiated, says Flynn. One
example is a provision to raise prices
based on the Consumer Price Index
(CPI). Flynn has seen a community
bank face a vendor price increase of
$6,000 a month because of CPI.
Whenever possible, Flynn
negotiates caps on CPI hikes for her
clients. She also pays close attention
to early termination penalties.
Here, she notes that hard dollar
amounts are generally preferable to
vague language.
Don't forget backburner
contracts like ATMs and
credit reporting. " I've seen credit
reporting contracts that have literally
been on auto-renew for 20 years, and
for ATMs, it can be the same thing, "
says Flynn. She therefore advises
paying attention to all contracts, even
the " backburner " ones.
9
" CEOs have so much to do that
they don't have time to focus on what
[you might] consider to be 'nonconsequential'
vendor contracts, "
Flynn says. " But ... there can be
incentives or cost-savings, and this
money can help them roll out new
digital banking or other services to
help them compete and be efficient. "
In the end, taking the time to
negotiate all contracts properly can
result in cost savings, both now and
down the road.
Elizabeth Judd is a writer in Maryland.
20 // ICBA Independent Banker // August 2023
Independent Banker - August 2023

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